* Article published on StateAidHub: http://stateaidhub.eu, republished in e-Competitions with the courtesy of the author. The original title of this article appears below the e-Competitions title. Authors are welcome to write an alternative article on this case/text, provided they have no relationships with a party or related third party. Article will need e-Competitions Board approval before publication.
Liquidity Support to Banks*
Banks that receive State aid are considered to be failing banks, except when the aid is granted to solvent banks for the purpose of precautionary recapitalisation or temporary liquidity.
During the past decade, large amounts of public funds have been committed to shore up failing or illiquid banks. Under current banking rules, the mere fact that a bank requests State aid triggers its classification as “failing or likely to fail” [FoLF]. A bank that is classified as FoLF must be liquidated unless it is in the public interest to resolve it. Resolution means that its systemic functions, i.e. those which are necessary for financial stability, are maintained. The exceptions to the default option of liquidation are “precautionary recapitalisation”
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